Sometimes you just can’t squeeze everything you want into a column. That happened in yesterday’s column on dividends.

What was left out was research by Michael Goldstein, a finance professor at Babson College in Massachusetts, that gives you one more reason to love dividends.

Dividends are cash payouts to shareholders. Yesterday’s column was about how this is shaping up to be the worst year ever for dividends. Major financial companies are either cutting or suspending their dividend this year. Blame the subprime mortgage mess.

It’s always nice to get cash back. But Goldstein has looked at the numbers from 1970 through 2000 and found that stocks that pay dividends outperform those that don’t. That’s true in both up and down markets.

“In down markets, dividend-paying stocks do way better,” Goldstein says.

In down markets, he says, the total return on dividend-paying stocks averaged nearly 11 percentage points higher than that of non-dividend paying stocks. In up markets, it's more like 4.5 percentage points.

Goldstein is looking at a stock’s total return. That’s any appreciation in the stock’s price plus any dividends paid out. But it’s not just the dividend that causes these stocks to turn in a superior performance, he says.

“I think they are run differently,” he says. There’s a different philosophy at companies that make it a priority to return extra cash to shareholders he says.

Posted by Eileen Ambrose at 4:30 PM | Permalink | Comments (0)
                    

Beware of the instant message stock tip.

Case in point: Alliance Data Systems.

According to the Securities and Exchange Commission today, Wall Street trader Paul S. Berliner spread a false rumor last year about Alliance Data Systems through instant messages to other traders and hedge funds. The media picked it up, too.

The SEC says Berliner told people that Blackstone Group, which was buying Alliance late last year, was renegotiating a lower price for the deal because of problems within Alliance.

The negative rumor immediately caused ADS stock to fall 17 percent. The swiftness of the decline led the New York Stock Exchange to step in temporarily halt trading of the stock. ADS came out with a press release denying the rumor.

Berliner, meanwhile, pocketed a $26,129 profit by short-selling the stock, a strategy where an investor makes money if a stock falls.

Berliner didn’t admit or deny the allegations, but he settled the charges against him. He can’t manipulate stocks again, he had to give up his profits with interest and must pay a maximum penalty of $130,000, plus he can no longer associate with a brokerage or dealer.

The lesson here is much broader. There are so many stock tips being circulated online and arriving in e-mail baskets. And there’s a good chance that the person sending them is someone who hopes to profit by you taking the bait.

Posted by Eileen Ambrose at 1:11 PM | Permalink | Comments (0)
                    

Dalbar, a financial services market research firm, recently ranked the Top 5 Web sites for consumers.

The No. 1 site — T. Rowe Price Associates.

Price has many helpful, fun and eye-opening calculators. It’s probably best known for its Retirement Income Calculator. The program takes into account thousands of simulations to give you an idea of your retirement success.

Plug in your age at retirement and how many years you expect to be retired. (In other words, how many years you expect to live.) Then you input your assets, your portfolio mix (how much in stocks, bonds and cash-like investments), how much income you hope your assets will generate, and how much assurance you want that you won’t outlive your money. You can go for 50 percent assurance to 99 percent assurance.

Say, you start retirement at 65 and plan to live another 30 years. You have $250,000 in assets and 80 percent of that is in stocks and 20 percent in bonds. You want a 90 percent chance that

Continue reading "Web sites investors can love" »

Posted by Eileen Ambrose at 4:32 PM | Permalink | Comments (0)
                    

Anyone out there wondering how we got into this mess? By mess, I mean the slowing economy, which might or might not be in recession. Officially, we're not in a recession, as the msnbc story says. But, and this is a big BUT, things are definitely not rosy.

I read a great story in the WPost yesterday about why we've got this mortgage mess on our hands. We're leverage addicts. Writer Michael S. Rosenwald sums it up quite well:

The simple answer, according to personal finance experts, is that we want more -- more money, more house, more car, just more, more, more. We often think we deserve more. Leverage gets us more. With historically low interest rates, leverage is the easiest and quickest tool to get more stuff.

The problem is that too much leverage has a downside that is easy to overlook. When everyone else is using leverage so successfully to get more, do we wonder what will happen if interest rates go up? Not so much.

Continue reading "Borrowing 'til it hurts" »

Posted by Dan Thanh Dang at 11:22 AM | Permalink | Comments (3)
                    

I often sit here daydreaming about winning the lottery. I wonder if I'd quit my job? I wonder if I'd buy a fancy new car or a villa in Europe somewhere? When I'm not in la-la land, I actually temper my dreams with reality and figure I'd just invest my winnings wisely so my family and i could retire in comfort.

These days, it's hard not to think about reality. What with the mortgage crisis, soaring energy prices and increasingly expensive food prices, we keep talking about saving for the future and being financially literate enough so that you manage your money wisely.  

In that discussion about saving, Reader Don and I discovered that we are both worriers. We worry about whether we're saving enough for retirement. We worry about whether there will be any Social Security benefits left for us when we retire. We worry about whether we'll ever be able to retire. Don's banking on winning the lottery to lift him out of his worries. Me? I don't even play so i know I'll never win. That means I better have a plan B.

When I asked Don if he's got a plan B, he said: I haven't, and that's the scary part, my 401K has $655 in it, and that'll last me a week of retirement. We are truly the spend now, worry later generation and i am a prime example. I'm starting to think lottery tickets so any advice would be much welcomed!

Continue reading "How to start saving for the future" »

Posted by Dan Thanh Dang at 8:06 AM | Permalink | Comments (1)
                    

If you haven't already read Eileen's very helpful story on how the Fed's three-quarters of a percentage point cut affects you, check it out here.

If you're too lazy to read it, I'll sum up for you.

Credit Cards: Don't count on seeing a lower interest rate.

Home Equity Lines: Expect to see a decrease as early as next month.

Mortgages: No change for fixed-rate mortgages, but maybe for adjustable rate mortgages.

Continue reading "How the Fed interest rate cut affects you" »

Posted by Dan Thanh Dang at 1:30 PM | Permalink | Comments (0)